The private sector is one option to pay for schooling
In its most recent study, the College Board found that the average cost of tuition and fees for the 2015-2016 school year for in-state public, out-of-state public and private institutions was nearly $22,000.
Where do they expect you to get that kind of money? Private loans are one option.
According to Investopedia.com, private loans are funds you can obtain from financial institutions, without government subsidies, that help cover college expenses not met by scholarships, grants, federal loans or other financial assistance.
“You can apply for a private loan at any time and use the loan proceeds towards college expenses in addition to tuition (books, computer, transportation),” Katie Adams writes in her Investopedia article.
Benefits of Private Loans
Obtaining a private loan is an attractive option to pay for college for a number of reasons:
- The application process is easy. Most loans do not require you to complete the FAFSA or a federal aid application. If you’ve ever filled one of those out, you know that this is a huge advantage for private loans, as the FAFSA can be painstakingly brutal. Above and beyond the quickness and ease, it is also convenient. “Typically you can apply for a loan online or by phone – no in-person meetings are necessary,” Adams says.
- Loan funds are available immediately after you are approved.
- You are usually allowed a co-signer. This is a plus because it can help lower interest rates and improve your chances of approval.
- Interest on a private loan may be tax-deductible.
- Fees are low or nonexistent. Most loans do not include a prepayment penalty, or a fee assessed if the loan is prepaid within a certain period of time.
There are potential downsides as well. You will typically have to pass a credit check to be approved, so having adequate credit history is important. You could possibly get around this point by having a co-signer, as mentioned above. Furthermore, private loans tend to have higher interest rates than federal loans, which could affect the amount you borrow and, in turn, have an impact on where you obtain your loan.
“Worse, student loans are not like credit card debt and mortgages, which can be canceled if you file for bankruptcy,” reads the College Loan Center page on the U.S. News & World Report website. “Most bankruptcy courts will not cancel them unless your situation is extremely dire. In addition, most private loans come with floating interest rates, so payments will rise if interest rates rise, which they generally do from time to time.”
What About a Federal Loan?
The official website for Federal Student Aid lists Direct Subsidized Loans and Direct Unsubsidized Loans, Direct PLUS Loans (for graduate and professional students or parents) and Federal Perkins Loans as your options for government-enabled student loans.
Benefits of federal loans include a low, fixed interest rate and flexible repayment options; plus, there’s no prepayment penalty. You also don’t need to pass a credit check for these loans. On the other hand, drawbacks of federal loans include low amount limits, the dreaded FAFSA, limitations on how funds are utilized, strict enrollment stipulations and a small loan fee.
In the end, a private loan may be the only option available for some, in which case it does carry merit to explore it as an education-funding alternative.
“College payments are going to be a substantial investment into the future of an individual. Schooling decisions go beyond just the financial numbers and move into the territory of bettering oneself,” Adams says. “Even so, finances cannot be ignored. Exploring your options can save headaches and money now and in the future.”
Stop by today to find out more about the options we have in store for you.